Although the amendments to the CIT Act within the scope of withholding tax have not yet been signed by the President of the Republic of Poland, entities that effect substantial foreign payments are already thinking what to do in order not to collect withholding tax (WHT), or collect it at a rate lower than the standard  19% or 20%. The discussion may take the form of the question whether a taxpayer should apply for an advance tax opinion / ruling, or if the remitter should file a statement?

Let’s recall that from 2019, payments that are subject to WHT on the basis of Article 21 Sec. 1 or Article 22 Sec. 1 of the CIT Act that are due from a single counterparty in an amount exceeding PLN 2 M annually will be subject to WHT at the rate of 19% (dividends) or 20% (interest, royalties, remuneration for certain intangible services). Tax remitters will be authorised to apply a lower rate of WHT (arising from a respective agreement to avoid double taxation), or to have the payment totally exempted from WHT (on the basis of an agreement or directives, provided that appropriate conditions are met) in the case that the application of a lower rate of taxation or exemption from taxation to such a payment is secured by an official tax opinion / ruling or the remitter’s statement.

ADVANCE TAX OPINION/ RULING

An advance tax opinion / ruling is a type of an individual tax opinion / ruling that confirms that a foreign counterparty (or Polish recipient of a dividend paid by another Polish company) is an entity qualifying for receipt of specific payments from a Polish remitter without WHT being collected. The tax opinion / ruling may only apply to payments that fall within the exemption from WHT on the basis of the Parent-Subsidiary Directive (dividends disbursed to shareholders who have had at least a 10% shareholding for an uninterrupted period of at least two years) or Interest-Royalties Directive (interest and royalties paid to parent, sister and/or daughter companies in which the taxpayer has had at least a 25% shareholding for an uninterrupted period of at least two years). It is worth remembering that in addition to the conditions provided in the directive, Polish law additionally requires foreign counterparties to hold a certificate of residence and a representation  confirming that all their income is subject to taxation, and with respect to interest and royalties that such counterparty is a beneficial owner of the payments.  Indirectly, provided that the tax opinion / ruling has been issued at all (as discussed below), it also confirms a few other circumstances.

A foreign counterparty (or the Polish recipient of dividend from a Polish company) may apply for issuance of a tax opinion / ruling. In the event that a Polish remitter bears the economic burden of WHT (by way of grossing up the payments they make) they are also authorized to apply for an advance tax opinion / ruling.

An application for issuance of a tax opinion / ruling should be made in the form as provided in the “logic structure” that will be made available online in the Public Information Bulletin (the content of which is yet unknown). The regulations do not provide for any additional appendices to the request for issuance of a tax opinion / ruling. However, given the purpose of the tax opinion / ruling and its consequences, as well as the instances when an authority may refuse its issuance, it seems that submitting at least the following documents will be advisable or necessary:

  1. Foreign counterparty’s tax residence certificate;
  2. Extract from the National Court Register of the Polish remitter (confirming the fact of holding an appropriate number of shares in the capital of the company disbursing dividend);
  3. Foreign counterparty’s representation that they are the beneficial owner of the received payments;
  4. Foreign counterparty’s representation that they are subject to taxation from the entirety of their income; and
  5. Information that the amount of payments to a foreign counterparty is market-based.

The above documents / information rather constitute the minimum which in practice may be required by a tax office. The ultimate list of requirements may be available either within the “logic structure of request” or structured in pace with the practice of examining subsequent requests by the fiscal authority representatives. It is also possible that the authorities will request, for example, CIT tax returns of the foreign counterparty for past years (in order to substantiate that the counterparty is subject to CIT taxation), or benchmarking analyses (with a view to prove that the payments are market based). A representation that the facts presented in the request for issuance of an advance tax opinion / ruling are consistent with the truth is subject to sanctions arising from the Penal Fiscal Code (PFC).

The tax opinion / ruling is issued within six months by an authority competent for foreign taxpayers, or, in the event of Polish taxpayers (recipients of dividends subject to exemption from taxation) by the fiscal authority competent with respect to the taxpayer’s registered seat.

A request for an advance tax opinion / ruling is subject to a fee of PLN 2,000. The tax opinion / ruling is valid for three years (from the time of its issuance), or until the end of the month in which a change occurred in the substantial circumstances that result in a failure to meet the conditions to apply the  exemption from taxation with WHT.

An authority may refuse to issue an advance tax opinion / ruling in the following circumstances: 1) conditions to apply the exemption from WHT have not been met; 2) reasonable doubts exist whether any of the documentation accompanying the request or the remitter’s statement that they are the beneficial owner of the payment are consistent with the truth; 3) reasonable presumptions exist that the payment to the counterparty is made with a view to avoid taxation (in breach of the regulations applicable to the “big” or “small” GAAR); and 4) reasonable presumptions exist that the taxpayer does not engage in real business activities. By obtaining an advance tax opinion / ruling, not only does a taxpayer confirm the fact that they meet conditions to apply an exemption from WHT, but they also receive an official confirmation that the payments they receive are not seen as made with a view to avoiding taxation.

REMITTER’S STATEMENT

A remitter’s statement is an institution provided for all kinds of payments subject to taxation with WHT at a lower rate / exemption from WHT, or refraining from collection of WHT. In practice, it is possible to use the statement in the event of payments to counterparties who are residents in the countries with which Poland has executed the appropriate agreements to avoid double taxation or residents in EU member countries remaining in the appropriate relationship of affiliation (which is referred to above in connection with the advance tax opinion / ruling that is required to apply an exemption from the EU Directives.

When deciding to use the statement, a remitter who makes a foreign payment (or disbursement of dividend to a Polish shareholder), shall, upon their own liability (in the event of attestation of untruth, the PFC provides for appropriate sanctions vis-à-vis Management Board members making the statement) confirm that: 1) they hold documents provided by the regulations of the CIT Act allowing for application of a reduced rate of WHT / exemption from WHT; and 2) are not aware of any information justifying the assumption that there are circumstances excluding the possibility of application of a reduced rate of WHT / exemption from WHT.

In practice, the above means that the Polish remitter should have at least the following:

  • Foreign counterparty’s certificate of residence;
  • Foreign counterparty’s representation that it is subject to taxation, with respect to its entire revenues, and it is the beneficial owners of the received payments (with respect to payments exempted from WHT on the basis of the EU Directives);
  • Information that the foreign counterparty meets the conditions allowing to apply the exemption from taxation with WHT to payments that are exempted from WHT on the basis of EU directives;
  • Information that the foreign counterparty engages in a real activity in the country of their residence.

The remitter’s statement should be submitted on the date of making a payment in favour of the foreign counterparty at the latest (although information about collection / refraining from collecting WHT is submitted with the fiscal authority in the following month).

The content of the statement should be consistent with the ‟logic structure” that will be made available on-line in the Public Information Bulletin (the details of which are still unknown).

Unlike the advance tax opinion / ruling, the remitter’s statement does not force any immediate consultation of its content by the fiscal administration officials   (until the time of tax inspection, if any), which creates a prolonged status of uncertainty whether the fiscal authorities will regard its content as correct.

It is also useful to examine the provisions of agreements to avoid double taxation or Article 21 Sec. 7 of the CIT Act, since they provide that in the event that interest (sums receivable under license or for intangible services) paid to a foreign related entity are not at a market level (higher than if they were paid to an unrelated entity) then a preferential WHT rate or exemption from WHT might not be applicable. It can therefore be assumed that both while submitting a request for issuance of an advance tax opinion / ruling and while making a remitter’s statement the remitter indirectly confirms that settlement of interest payments, royalties or amounts receivable for intangible services is at a market level.

In summary, the tactics as to when to apply for an [advance] opinion / ruling and when to rely on a [remitter’s] statement will depend on numerous factors. Firstly, an opinion / ruling will not be available for all kinds of payments. However, the question whether it is always worthwhile to expose the local Management Board to confirm certain data applicable to another entity that are not always obvious (in particular in the event of absence of regular business relations and incomplete transparency of the structure of the foreign counterparty) remains to be analysed and assessed also in terms of business risk.